I could start with a cliché about how the Phoenix real estate market is heating up. Get it? Because it’s warm there? But when you have numbers like these, who needs clichés:

Phoenix recently posted the largest annual return in home prices of any city in the Case-Shiller 20-city index. According to the report, which was released earlier this week, home prices in the Phoenix metro area rose by a whopping 23% from February 2012 to February 2013.

The S&P/Case-Shiller Home Price Index is one of the oldest and most closely watched indices of its kind. It includes a national composite of house values, as well as a 10-city and 20-city index. There is a two-month lag time in reporting, hence the February-to-February data range mentioned above.

Here are the latest numbers from the Case-Shiller report:

You’ll notice two things in this table. Phoenix had the largest annual return in home prices, as well as the second-largest monthly gain. It outpaced both the 10- and 20-city composites (averages) by a country mile. Is it time for those ‘hot’ clichés yet?

Phoenix Real Estate Trends and Outlook

So what’s going on in this real estate market? Why are home prices here rising so much faster than in other metro areas? Inventory reduction has played a major role. This market has shrunk considerably over the last couple of years.

Investors and ‘regular’ home buyers alike have absorbed much of the surplus the piled up during the housing collapse. So it’s Supply and Demand 101, all over again.

But the inventory situation is leveling off some. The Phoenix real estate market used to be one of the top-ten housing markets in the country, in terms of inventory reduction. Not anymore. Consider the evidence:

Realtor.com publishes a monthly housing report with data for 146 of the largest metro areas in the U.S. If you sort the cities based on the decline in total real estate listings (by how much they have shrunk), Phoenix is nowhere near the top of the list. It used to be. The top cities in this category all have annual inventory-reduction rates of 40% or higher.

According to Realtor.com, the total number of listings in the Phoenix metro area declined by a mere 9% over the last year or so. That number used to be much higher.

Year over year, the inventory level is still declining. But the rate of decline has slowed. This could very well have a leveling effect on home prices in the months ahead. Do prices have further to rise? Most likely. They’re nowhere near their July 2006 peak. Will they continue to rise as quickly as they have in the past? Probably not.

Nevertheless, home sellers in the Phoenix area are feeling confident right now. That’s why list prices are soaring across the metro area. According to data compiled by Realtor.com, the median list price for this area rose by more than 25% over the last year or so.

Phoenix is picking up steam on the job front, as well. In fact, the city’s unemployment rate fell to 6.7% in March 2013, according to the Bureau of Labor Statistics. That was better than the national average (7.6%) for the same month. Unemployment in the Phoenix-Mesa-Glendale metro area peaked at 10.5% in 2010 and has fluctuated downward ever since.